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A flu that won't go away
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July 2, 1998: 11:18 a.m. ET
On first anniversary of the Asian crisis, remedies seem elusive as ever
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NEW YORK (CNNfn) - Mention July 2, 1997 to even the most die-hard history buff and chances are you'll draw a blank. Mention it to any cognoscenti of the Asian Crisis and brace for a blast -- of vitriol.
That was the date -- one year ago Thursday -- that the Thai Central Bank abandoned its six-month defense of the country's enfeebled currency, the baht, triggering an Asian downturn that would summarily dethrone El Nino as the global economy's most fearsome spoiler.
"We swore at the time they weren't going to pull the plug," said Leslie Richardson, the managing director for Asian equity sales of SG Cowen.
The Thai move fell with a thud on currency markets, coming less than two weeks after Thai Prime Minister Chavalit Yongchaiyudh's read-my-lips-style vow to "never devalue the baht." At once, the baht bottomed out, unleashing a frenzy of speculatory predation on markets across the Pacific Rim. As overseas investors fled, the International Monetary Fund stumbled into the breach.
One year, several mass riots, a deposed president, scores of bank closures, and half a dozen multi-billion-dollar IMF bailouts later, Asia's financial morass has become the world's muddle.
Despite tentative signs of a mild recovery in Thailand and the Philippines -- mild being the operative term -- sparring analysts who disagree on just about everything else concur on one major point: that any lasting remedy to Asia's impasse is still years -- if not decades -- away.
Classic cycle or gnawing malady?
As for the causes of the crisis, common ground is harder to find. Is Asia in the throes of a classic "cyclical" downturn, a mere case of economic hiccups inevitable after decades of pacesetting prosperity? Or is the malaise a symptom of a larger malady -- a carefully nurtured system of cronyism, corruption and financial opacity built of, by and for the region's political and business elite?
Rosemary Sagar, the head of international investments with U.S. Trust, falls into a middle-of-the-road camp that believes one cannot lump the entire Asian region into a single paradigm of economic ineptitude.
While Thailand and the Philippines may be mired in economic troubles, in Thailand, at least, a $17.2 billion IMF-led reform package has helped spur a remarkable recovery. Others nations -- such as Indonesia -- also have received IMF succor but have little to show for it, as yet.
Sagar described a meeting she had during a recent trip to Thailand with the chief executive of BEC World, the country's largest privately owned television station.
"They were surprisingly upbeat," she said. "They felt they were a bit of a leading indicator for the country and the economy." Nearly three-quarters of BEC's advertising revenue comes from multinational companies, the very types of sponsors that have fled other countries in the region.
In the past year, Thailand's government has taken a no-nonsense stance and shut down more than 50 financial institutions and helped recapitalize its two largest banks to the tune of billions of dollars.
Meanwhile, in Korea, Japan and Indonesia, structural roadblocks like the giant chaebols in Korea and the vast patronage networks in Japan have thwarted any move toward serious reform. It is this structural rigidity, experts say, that has fostered market skepticism over Japan's $128 billion stimulus plan of banking reform and tax cuts.
Such skepticism has wide-ranging ramifications. Further setbacks in Japan -- which officially acknowledged it is in a recession on June 12 -- could whiplash the rest of the region, forcing a worse liquidity squeeze and a private-sector crunch that would impede recovery efforts by neighboring economies.
From denial to begrudging action
Japan's predicament at times seems starkest in the proclamations of its own people. Like its neighbors, Japan's elected officials gradually are owning up to the depth of the crisis, after months of resentment and denial.
In April, Prime Minister Ryutaro Hashimoto called the crisis the worst since World War II. Sony Chairman Norio Ohga chimed in with his own doomsday declaration that the Japanese economy is on the brink of collapse; Ohga likened Hashimoto to U.S. President Herbert Hoover on the eve of the Great Depression in 1929.
Such remarks, analysts say, underscore the nuances of the crisis and its evolution.
"What's deceptive here is that we're really seeing many different stages of the crisis, but people just look at the crisis as starting just last year in Thailand," Sagar said. "The starting point is really the cyclical mismatch between the different major regions of the world, and that began with the Berlin Wall coming down."
In this view, the road to the stunning collapse in November 1997 of Yamaichi Securities Co., Japan's fourth-largest broker, really began in the early 1990s, when roles were reversed and the United States was in recession.
During this period of low interest rates, most of Asia's overseas capital inflow was steered into asset markets, mostly stocks and properties. This, in turn, fed a giant real estate boom built on gossamer capital foundations. Before long, a galaxy of speculative bubbles had been created, ripe for the popping once jittery investors began reassessing their risks and sucking money out of the markets.
This may seem a straightforward blueprint for boom-and-bust. But Nicholas Horsley, an international portfolio investor with Oppenheimer Funds Inc., argues that Asia's present travails are more than a case of the cyclical blues: They reflect the utter failure of the region's economic development model.
"I'm a great fan of Asia's, but dinosaurs die," said Horsley. "If you have any form of central planning, it doesn't work beyond a certain point of complexity and a certain rate of economic growth."
Delegate decision-making now
For Asia to break out of its current mold, what Horsley calls the "decision-making mechanism for the allocation of capital" has to be delegated downward -- to the level of grass-roots entrepreneurs. Bailout packages can go only so far to help, he argues. "(Reform) requires junior managers to question senior managers," something Horsley said is yet to happen on a large scale anywhere in Asia. Even in more reform-receptive economies, like that of Thailand, all we have seen so far, Horsley maintains, is "the string and chewing gum stuff."
"They're making the right noises," he says.
Even optimists concede the path to renewed prosperity will be arduous.
"I'm a firm believer in the long-term Asia growth story, but I think you have to think of this growth story in the five-year sense," said Richardson who, ironically, began her career as a Latin American specialist but abruptly changed course when that region proved to be a non-starter on the growth curve.
Richardson added: "You shouldn't be expecting any sort of hugely positive economic rebound out of Asia until the year 2000…I think there were unreasonable expectations about how quickly this would be over. Things have been wrung out of Thailand, wrung out of Indonesia, but the whole currency situation is right now very much in the air."
For Horsley, the vital task facing Asia now is finding courageous leaders with the will to wring things out some more.
"Local politicians obviously cannot put their hands on their hearts and say 'Excuse me, guys, it was all my fault.'" 
-- by staff writer Douglas Herbert
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